London – It has been a week since the UK narrowly voted to leave the EU – or Brexit – in a nationwide in-out referendum and, perhaps, the most significant outcomes so far have been a sharp fall of sterling against the dollar and uncertainty about what is yet to come.
Reactions within the rubber and tire sectors and their supplier industries have been mainly of disappointment, although many have tried to put on a brave face.
However, said CIA, the result was “not the decision that our sector wanted.”
Despite a decline over recent years, the UK is still a significant hub for tire-making in the EU with a 10-percent production share and the presence of major players.
Pirelli has two productions sites, in Carlisle and Burton-on-Trent, England; while Michelin, despite plans to close down the Northern Ireland Ballymena factory, still operates major facilities in Dundee, Scotland and Stoke-on-Trent in England.
Also, Cooper Tire and Dunlop Aircraft Tyres have production sites in England.
In the debates prior to the referendum vote, former Cumbria MP Eric Martlew, reportedly warned that the Pirelli tire plant in Carlisle would close “within five years” in the case of a leave vote.
However, this view was refuted by a local chamber of commerce official, who was hopeful that companies like Pirelli would stay, if the UK could strike a favourable trade deal with the EU.
Brexit, Pirelli stated, should have little or no impact on its operation in the UK, though costs and pricing would need to be balanced for the internal market.
With regards to exports, the Italian tire-maker said, higher raw material costs should be offset by sterling devaluation and control of operating costs.
As a leading tire-maker with no manufacturing base in the UK, Continental said it is unlikely to be affected by the vote as "less than 3 percent of our sales" are generated in the UK.
Nevertheless, Continental CEO Elmar Degenhart did criticise the decision as a move that could undermine the EU.
“Going it alone”, he told ERJ, “goes against the very reason for founding the EU in the first place and is not the answer to the challenges we face from global competition with America and Asia.”
Degenhart also echoed the concerns voiced by the industry suggesting that the time taken to negotiate new trade agreements could cause political and economic uncertainty as well as job cuts in London’s financial district.
German plastic and rubber machinery producers are also concerned.
Stating that he “very much regretted” the Brexit decision, the head of VDMA Thorsten Kühmann, predicted that “on the plastics and rubber machine side, in the next one to two years we will not see many investments in the UK.
This, according to Kühmann, was because it was “uncertain” how the relationship between the UK and the EU would develop.
Incidentally, machinery sales to the UK is also 3 percent of the total German export, which according to Kühmann shouldn’t be “a big drama” if there is a fall.
Of the EU member states, The Netherlands stands to lose the most by the vote according to the country’s Bureau for Economic Policy Analysis (CPB).
In 2015, the UK imported a total of $3.4 billion worth of plastics and organic chemicals from The Netherlands.
In addition to that, the UK will also be highly impacted by the devaluation of currency when it comes to imports.
These could, for instance, include tire imports, particularly from sources that trade in dollars.
“Basically, all the Chinese imports, which are in dollars right now, will be more expensive as the pound has mainly slipped against the dollar,” according to industry veteran and consultant Peter Taylor.
Meanwhile, exports of waste tires, particularly as tire-derived fuel (TDF), may also be advantaged by a weak pound to the detriment of closer to home recyclers, added Taylor, who heads the Tyre Recovery Association in the UK.
And, he concluded, exchange rate is the "hard fact for now" and the longer-term fall-out from Brexit is yet to be determined.